Have you seen Foreclosures on the market and questioned if it’s a good deal or too risky? Is buying a foreclosure, the right purchase for you?
Foreclosure is a legal process, where the lender recovers the balance of the loan from the borrower, who has stopped paying their loan, and the lender is forced to sell the property as collateral for the remainder of the money owing. You buy it on an “as is where is basis”.
The lender’s goal is to recoup the money owing as quickly as possible. Also, these homes tend to be in various states of disrepair. Therefore, the purchase price is typically lower than other homes for sale in that area.
While many foreclosures are in disrepair, this is not always the case. In many cases, the homeowner doesn’t want to walk away from the house and so they have not neglected the home.
A rule of thumb when buying any property is to conduct a Home Inspection. For bank-owned properties, the bank will allow the potential buyer to arrange an inspection.
In British Columbia, a typical foreclosure goes through a Court process in which multiple interested parties will bid on the real estate in a closed envelope bidding process. The theory behind the process is that it should result in the property selling for fair market value. In our experience, foreclosures still sometimes sell below market value. At other times, they sell for far more than we expect, when the buyer’s get caught up in the competition of bidding.
The terms of the mortgage contract may free the lender from any responsibilities, as well as any future liability for the property. If there are foundation, roof, or zoning problems, they are typically your responsibility as the buyer
Once an offer has been made on a foreclosed property and all conditions have been met; then the lawyer will apply for a court date. The buyer must be fully prepared to buy the real estate on the court day as it may complete in as little as one week. The buyer must also have a deposit in the form of a bank draft or certified cheque. The Buyer who made the original offer is then given an opportunity to increase their offer if there is more than one buyer. All sealed bids are then given to the lawyer, who in turn gives them to the Judge. The Judge then opens them up in no order and if satisfied that the rights of the "owner" have been looked after will award the property to the Buyer with the best offer.
During this process, hiring a professional Realtor is more important than ever, because buying a foreclosed home is more complexed than buying a regular home. A Realtor will be able to guide you through this process and take away the stress, as this isn’t their first foreclosure!
Foreclosed homes can be a great tactic to get your foot on the property ladder but ensure you have done your research first as you don’t want to end up with a repair headache!